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Banks will also be allowed to hold money in investments which can generate higher returns.

These include lower quality corporate bonds and some shares.

Lenders were originally meant to hold
just cash and easily sellable assets such as top quality, low yielding
corporate bonds and government bonds.

Critics argue regulators have
compromised on the safety of the financial system and bowed to powerful
lobbying from banks. Banks claim stricter rules would impede the global
economy by restricting their ability to lend.

The decision to include ‘top rated’ mortgage backed securities – which helped trigger the financial crisis and proved virtually impossible to sell – is particularly controversial.

The relaxation of these regulations
is a coup for British banks, which have been quicker than many of their
European rivals to build up spare capital.Analysts believe they will be able to
boost their earning power by investing more in risky investments with
higher returns, and reducing the amount of money in their buffer.

They will also be able to slash their interest payments by reducing the amount they need to borrow.

Analysts believe Morrisons has
struggled to compete because of its lack of grocery delivery service and
small number of convenience stores.

Rival Tesco (down 0.15p to 349.3p) is
likely to show a modest return to sales growth later this week, with
Sainsbury’s (down 2.1p to 331.7p) expected to be up by 1 per cent on Wednesday.

Analysts at Panmure Gordon reckon Tesco will post the strongest

Christmas trading of the ‘big four’ after a year to forget in 2012 and advise investors to buy.

Elsewhere on the high street, they
warned that any slip-up by department store Debenhams (down 0.8p to
117.1p) will be ‘heavily punished’.

Shares rose 94.7 per cent last
year, boosted by strong online sales. Panmure says it remains a holder
but fears that the retailer relied too heavily on slashing prices in the
run up to Christmas. British American Tobacco wheezed its way up 19.5p
to 3194p after Deutsche Bank upgraded it from hold to buy.

It believes that tobacco stocks are looking cheap after a year in which they underperformed the FTSE.

Concerns about tougher regulations have cast a thick, black cloud over the industry.

Last month, the European Commission
unveiled plans for bigger health warnings on cigarette packets and a ban
on strong flavourings.

Australia also introduced new laws requiring cigarettes to be sold in plain packets.

Deutsche said now this is all out in the open the industry can move on.

Further revelations of bribery at
engineering powerhouse Rolls-Royce in China spooked investors which sent
shares down 13.5p to 904.5p.

FT publisher Pearson dropped 12p to 1210p after it took a £120m hit from closing its adult education arm.

- Shares in Ted Baker – still best known to many for its hard-wearing Endurance suits – soared 68p or 6 per cent to 1198p. The retailer, which posts its Christmas trading figures tomorrow, is expected to continue pulling away from many of its high street rivals. Analysts at Panmure Gordon have predicted an 18-20 per cent jump in sales over the festive period, after forecast-busting growth of 22.1 per cent in the 13 weeks to November 10.